Edgar Filing: MFA MORTGAGE INVESTMENTS

Unassociated Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 1-13991

MFA MORTGAGE INVESTMENTS, INC.

(Exact name of registrant as specified in its charter)

______________

Maryland

(State or other jurisdiction of

incorporation or organization)

350 Park Avenue, 21st Floor, New York, New York

(Address of principal executive offices)

13-3974868

(I.R.S. Employer

Identification No.)

10022

(Zip Code)

(212) 207-6400

(Registrant’s telephone number, including area code)

______________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer o	Accelerated filer x

	Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

151,675,335 shares of the registrant’s common stock, $0.01 par value, were outstanding as of April 28, 2008.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

		Page
Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2008
	(Unaudited) and December 31, 2007	1

	Consolidated Statements of Income (Unaudited) for the
	Three Months Ended March 31, 2008 and March 31, 2007	2

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
	for the Three Months Ended March 31, 2008	3

	Consolidated Statements of Cash Flows (Unaudited) for the
	Three Months Ended March 31, 2008 and March 31, 2007	4

	Consolidated Statements of Comprehensive Income (Unaudited)
	for the Three Months Ended March 31, 2008 and March 31, 2007	5

	Notes to the Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results
	of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	40


PART II OTHER INFORMATION

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 6.	Exhibits	41

Signatures		43

MFA MORTGAGE INVESTMENTS, INC.

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
(In Thousands, Except Per Share Amounts)	2008			2007
	(Unaudited)
Assets:
Investment securities at fair value (including pledged mortgage-backed securities (“MBS”) of $8,033,950 and $8,046,947 at March 31, 2008 and December 31, 2007, respectively) (Notes 3 and 7)	$	8,115,988		$	8,302,797
Cash and cash equivalents		339,767			234,410
Restricted cash (Note 2(d))		33,055			4,517
Interest receivable (Note 4)		42,154			43,610
Interest rate swap agreements (“Swaps”), at fair value (Note 5)		-			103
Real estate, net (Note 6)		11,543			11,611
Goodwill (Note 2(f))		7,189			7,189
Prepaid and other assets		2,069			1,622
Total Assets	$	8,551,765		$	8,605,859

Liabilities:
Repurchase agreements (Note 7)	$	7,311,767		$	7,526,014
Accrued interest payable		23,858			20,212
Mortgage payable on real estate (Note 6)		9,425			9,462
Swaps, at fair value (Note 5)		141,584			99,836
Dividends and dividend equivalents payable (Note 10(b))		-			18,005
Accrued expenses and other liabilities		13,436			5,067
Total Liabilities		7,500,070			7,678,596

Commitments and contingencies (Note 8)

Stockholders' Equity:
Preferred stock, $.01 par value; series A 8.50% cumulative redeemable; 5,000 shares authorized; 3,840 shares issued and outstanding at March 31, 2008 and December 31, 2007 ($96,000 aggregate liquidation preference) (Note 10)		38			38
Common stock, $.01 par value; 370,000 shares authorized; 151,675 and 122,887 issued and outstanding at March 31, 2008 and December 31, 2007, respectively (Note 10)		1,517			1,229
Additional paid-in capital, in excess of par		1,338,842			1,085,760
Accumulated deficit		(177,246	)		(89,263	)
Accumulated other comprehensive loss (Note 12)		(111,456	)		(70,501	)
Total Stockholders’ Equity		1,051,695			927,263
Total Liabilities and Stockholders’ Equity	$	8,551,765		$	8,605,859

The accompanying notes are an integral part of the consolidated financial statements.

MFA MORTGAGE INVESTMENTS, INC.

CONSOLIDATED STATEMENTS OF INCOME

	For the Three Months Ended
	March 31,
(In Thousands, Except Per Share Amounts)	2008			2007
	(Unaudited)

Interest Income:
Investment securities (Note 3)	$	125,065		$	84,347
Cash and cash equivalent investments		3,031			448
Interest Income		128,096			84,795

Interest Expense (Note 7)		93,472			72,260

Net Interest Income		34,624			12,535

Other (Loss)/Income:
Net (loss)/gain on sale of MBS (Note 3)		(24,530	)		3
Other-than-temporary impairment on investments securities (Note 3)		(851	)		-
Revenue from operations of real estate (Note 6)		414			413
Net loss on early termination of Swaps (Note 5)		(91,481	)		-
Miscellaneous other income, net		92			115
Other (Loss)/Income		(116,356	)		531

Operating and Other Expense:
Compensation and benefits (Note 13)		2,644			1,612
Real estate operating expense and mortgage interest (Note 6)		449			420
Other general and administrative		1,118			1,184
Operating and Other Expense		4,211			3,216

Net (Loss)/Income Before Preferred Stock Dividends		(85,943	)		9,850
Less: Preferred Stock Dividends		2,040			2,040
Net (Loss)/Income to Common Stockholders	$	(87,983	)	$	7,810

(Loss)/Income Per Share of Common Stock – Basic and Diluted (Note 11)	$	(0.61	)	$	0.10

The accompanying notes are an integral part of the consolidated financial statements.

MFA MORTGAGE INVESTMENTS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

	For the Three Months Ended
(In Thousands, Except Per Share Amounts)	March 31, 2008
	(Unaudited)

Preferred Stock, Series A 8.50% Cumulative Redeemable – Liquidation Preference $25.00 per Share:
Balance at December 31, 2007 and March 31, 2008 (3,840 shares)	$	38

Common Stock, Par Value $0.01:
Balance at December 31, 2007 (122,887 shares)		1,229
Issuance of common stock, net of shares withheld (28,788 shares)		288
Balance at March 31, 2008 (151,675 shares)		1,517

Additional Paid-in Capital, in excess of Par:
Balance at December 31, 2007		1,085,760
Issuance of common stock, net of expenses		252,786
Share-based compensation expense		342
Shares withheld upon exercise of common stock options (22 shares)		(46	)
Balance at March 31, 2008		1,338,842

Accumulated Deficit:
Balance at December 31, 2007		(89,263	)
Net loss		(85,943	)
Dividends declared on preferred stock		(2,040	)
Balance at March 31, 2008		(177,246	)

Accumulated Other Comprehensive Loss:
Balance at December 31, 2007		(70,501	)
Unrealized gains on investment securities, net		896
Unrealized losses on Swaps		(41,851	)
Balance at March 31, 2008		(111,456	)

Total Stockholders' Equity at March 31, 2008	$	1,051,695

The accompanying notes are an integral part of the consolidated financial statements.

MFA MORTGAGE INVESTMENTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	March 31,
(In Thousands)	2008			2007
	(Unaudited)
Cash Flows From Operating Activities:
Net (loss)/income	$	(85,943	)	$	9,850
Adjustments to reconcile net income to net cash provided by operating activities:
Losses on sale of MBS		25,101			-
Gains on sales of MBS		(571	)		(3	)
Losses on early termination of Swaps		91,481			-
Amortization of purchase premium on MBS, net of accretion of discounts		5,267			8,343
Amortization of premium cost for interest rate cap agreements (“Caps”)		-			181
Decrease/(increase) in interest receivable		1,456			(255	)
Depreciation and amortization on real estate, including discontinued operations		117			102
Increase in other assets and other		(542	)		(478	)
Increase/(decrease) in accrued expenses and other liabilities		8,369			(949	)
Increase/(decrease) in accrued interest payable		3,646			(1,749	)
Other-than-temporary impairment charge		851			-
Equity-based compensation expense		342			174
Negative amortization and principal accretion on investment securities		(238	)		(87	)
Net cash provided by operating activities		49,336			15,129

Cash Flows From Investing Activities:
Principal payments on MBS and other investments securities		395,632			492,381
Proceeds from sale of MBS		1,851,019			6,830
Purchases of MBS and other investment securities		(2,089,356	)		(541,881	)
Net cash provided/(used) by investing activities		157,295			(42,670	)

Cash Flows From Financing Activities:
Increase in restricted cash		(28,538	)		-
Principal payments on repurchase agreements		(15,762,869	)		(8,604,712	)
Proceeds from borrowings under repurchase agreements		15,548,622			8,645,358
Payments made for termination of Swaps		(91,481	)		-
Proceeds from issuances of common stock		253,074			364
Dividends paid on preferred stock		(2,040	)		(2,040	)
Dividends paid on common stock and dividend equivalent rights (“DERs”)		(18,005	)		(4,899	)
Principal payments on mortgage		(37	)		(33	)
Net cash (used)/provided by financing activities		(101,274	)		34,038

Net increase in cash and cash equivalents		105,357			6,497
Cash and cash equivalents at beginning of period		234,410			47,200
Cash and cash equivalents at end of period	$	339,767		$	53,697

The accompanying notes are an integral part of the consolidated financial statements.

MFA MORTGAGE INVESTMENTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended
	March 31,
(In Thousands)	2008			2007
	(Unaudited)

Net (loss)/income before preferred stock dividends	$	(85,943	)	$	9,850
Other Comprehensive Income:
Unrealized gain on investment securities arising during the period, net		8,836			12,500
Reclassification adjustment for MBS sales		(8,241	)		-
Reclassification adjustment for other-than-temporary impairment included in net income from investment securities		301			-
Unrealized loss on Caps arising during the period, net		-			(51	)
Unrealized loss on Swaps arising during the period, net		(90,013	)		(4,700	)
Reclassification adjustment for net losses included in net income from Swaps		48,162			-
Comprehensive (loss)/income before preferred stock dividends		(126,898	)		17,599
Dividends on preferred stock		(2,040	)		(2,040	)
Comprehensive (Loss)/Income to Common Stockholders	$	(128,938	)	$	15,559

The accompanying notes are an integral part of the consolidated financial statements.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization

MFA Mortgage Investments, Inc. (the “Company”) was incorporated in Maryland on July 24, 1997 and began operations on April 10, 1998. The Company has elected to be treated as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. In order to maintain its qualification as a REIT, the Company must comply with a number of requirements under federal tax law, including that it must distribute at least 90% of its annual taxable ordinary net income to its stockholders, subject to certain adjustments. (See Note 10(b).)

2. Summary of Significant Accounting Policies

(a) Basis of Presentation and Consolidation

The accompanying interim unaudited financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted according to such SEC rules and regulations. Management believes, however, that these disclosures are adequate to make the information presented therein not misleading. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2007. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at March 31, 2008 and results of operations for all periods presented have been made. The results of operations for the three-month period ended March 31, 2008 should not be construed as indicative of the results to be expected for the full year.

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(b) MBS/Investment Securities

The Company’s investment securities are comprised primarily of hybrid and adjustable-rate MBS (collectively, “ARM-MBS”) that are issued or guaranteed as to principal and/or interest by a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S. government, such as Ginnie Mae (collectively, “Agency MBS”) or are rated AAA by at least one nationally recognized rating agency, such as Moody’s Investors Services, Inc., Standard & Poor’s Corporation or Fitch, Inc. (“Rating Agencies”). Hybrid MBS have interest rates that are fixed for a specified period and, thereafter, generally reset annually. To a lesser extent, the Company also holds investments in non-Agency MBS, mortgage-related securities and other investments that are rated below AAA. At March 31, 2008, the Company held securities with a carrying value of $4.5 million rated below AAA, including unrated investment securities. (See Note 3.)

The Company accounts for its investment securities in accordance with Statement of Financial Accounting Standards (“FAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” which requires that investments in securities be designated as either “held-to-maturity,” “available-for-sale” or “trading” at the time of acquisition. All of the Company’s investment securities are designated as available-for-sale and are carried at their fair value with unrealized gains and losses reported in other comprehensive income, a component of Stockholders’ Equity. (See Notes 2(k) and 9.) The Company determines the fair value of its investment securities based upon prices obtained from a third-party pricing service and broker quotes.

The Company applies the guidance prescribed in Financial Accounting Standards Board (“FASB”) Staff Position FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments” (the “FASB Impairment Position”). (See Note 2(e).)

Although the Company generally intends to hold its investment securities until maturity, it may, from time to time, sell any of its securities as part of the overall management of its business. The available-for-sale designation provides the Company with the flexibility to sell its investment securities. Upon the sale of an investment security, any unrealized gain and loss is reclassified out of accumulated other comprehensive income to earnings as a realized gain or loss using the specific identification method.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Interest income is accrued based on the outstanding principal balance of the investment securities and their contractual terms. Premiums and discounts associated with Agency MBS and MBS rated AAA are amortized into interest income over the life of such securities using the effective yield method, adjusted for actual prepayment activity in accordance with FAS No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases.” Certain of the Agency MBS owned by the Company contractually provide for negative amortization, which occurs when the full amount of the stated coupon interest due on the distribution date for an MBS is not received from the underlying mortgages. The Company recognizes such interest shortfall on its Agency MBS as interest income with a corresponding increase in the related Agency MBS principal value (i.e., par) as the interest shortfall is guaranteed by the issuing agency.

Interest income on the Company’s securities rated below AAA, including unrated securities, is recognized in accordance with Emerging Issues Task Force (“EITF”) of the FASB Consensus No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets” (“EITF 99-20”). Pursuant to EITF 99-20, cash flows from a security are estimated applying assumptions used to determine the fair value of such security and the excess of the future cash flows over the initial investment is recognized as interest income under the effective yield method. The Company reviews and, if appropriate, makes adjustments to its cash flow projections at least quarterly and monitors these projections based on input and analysis received from external sources, internal models, and its judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in interest income recognized on, or the carrying value of, such securities.

Cash and cash equivalents include cash on deposit with financial institutions and investments in high quality overnight money market funds, all of which have original maturities of three months or less. The carrying amount of cash equivalents approximates their fair value.

(d) Restricted Cash

Restricted cash represents cash held in interest-bearing accounts by counterparties as collateral against the Company’s Swaps and/or repurchase agreements, the amount of which varies by counterparty. Restricted cash is not available to the Company for general corporate purposes, but may be applied to payments due to Swap or repurchase agreement counterparties or returned to the Company in the event that the collateral is in excess of the collateral requirements and/or at expiration of the Swap or repurchase agreement. At March 31, 2008 and December 31, 2007, the Company had restricted cash held as collateral against its Swap and repurchase agreements of $33.1 million and $4.5 million, respectively. (See Notes 5 and 7.)

(e) Credit Risk/Other-Than-Temporary Impairment

The Company limits its exposure to credit losses on its investment portfolio by requiring that at least 50% of its investment portfolio consist of hybrid and adjustable-rate MBS that are either (i) Agency MBS or (ii) rated in one of the two highest rating categories by at least one Rating Agency. The remainder of the Company’s investment portfolio may consist of direct or indirect investments in: (i) other types of MBS and residential mortgage loans; (ii) other mortgage and real estate-related debt and equity; (iii) other yield instruments (corporate or government); and (iv) other types of assets approved by the Company’s Board of Directors (the “Board”) or a committee thereof. At March 31, 2008, all of our Agency and AAA rated MBS were secured by first lien mortgage loans on one to four family properties. At March 31, 2008, 91.6% of the Company’s assets consisted of Agency MBS and related receivables, 3.7% were MBS rated AAA by Standard & Poor’s Corporation and related receivables and 4.4% were cash, cash equivalents and restricted cash; combined these assets comprised 99.7% of the Company’s total assets. The Company’s remaining assets consisted of an investment in real estate, securities rated below AAA or unrated and other assets. (See Note 3.)

The Company accounts for its investment securities in accordance with the FASB Impairment Position, which, among other things, specifically addresses: the determination as to when an investment is considered impaired; whether that impairment is other-than-temporary; the measurement of an impairment loss; accounting considerations subsequent to the recognition of an other-than-temporary impairment; and certain required disclosures about unrealized losses that have not been recognized as other-than-temporary impairments.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company assesses its investment securities for other-than-temporary impairment on at least a quarterly basis. When the fair value of an investment is less than its amortized cost at the balance sheet date of the reporting period for which impairment is assessed, the impairment is designated as either “temporary” or “other-than-temporary.” If it is determined that impairment is other-than-temporary, then an impairment loss is recognized in earnings reflecting the entire difference between the investment's cost basis and its fair value at the balance sheet date of the reporting period for which the assessment is made. The measurement of the impairment is not permitted to include partial recoveries subsequent to the balance sheet date. Following the recognition of an other-than-temporary impairment, the fair value of the investment becomes the new cost basis of the investment and is not adjusted for subsequent recoveries in fair value through earnings. Because management’s assessments are based on factual information as well as subjective information available at the time of assessment, the determination as to whether an other-than-temporary impairment exists and, if so, the amount considered impaired, or not impaired, is subjective and, therefore, constitute material estimates that are susceptible to significant change.

Upon a decision to sell an impaired available-for-sale investment security on which the Company does not expect the fair value of the investment to fully recover prior to the expected time of sale, the investment shall be deemed other-than-temporarily impaired in the period in which the decision to sell is made. The Company recognizes an impairment loss when the impairment is deemed other-than-temporary even if a decision to sell has not been made. The Company did not recognize any other-than-temporary impairment on any of its Agency MBS during the quarters ended March 31, 2008 and March 31, 2007.

Certain of the Company’s investment securities rated below AAA were purchased at a discount to par value, with a portion of such discount considered credit protection against future credit losses. The initial credit protection (i.e., discount) on these MBS may be adjusted over time, based on review of the investment or, if applicable, its underlying collateral, actual and projected cash flow from such collateral, economic conditions and other factors. If the performance of these securities is more favorable than forecasted, a portion of the amount designated as credit discount may be accreted into interest income over time. Conversely, if the performance of these securities is less favorable than forecasted, impairment charges and a write down of such security to a new cost basis could result. During the three months ended March 31, 2008, the Company recognized an impairment charge of $851,000 against one of its unrated securities with an amortized cost, prior to recognizing such impairment, of $1.9 million. The Company did not have any impairment charges against any of its securities rated below AAA during the quarter ended March 31, 2007. At March 31, 2008, the Company had $4.5 million, or 0.1% (i.e., 1/10 of 1%) of its assets, invested in investment securities rated below AAA or unrated. (See Note 3.)

(f) Goodwill

The Company accounts for its goodwill in accordance with FAS No. 142, "Goodwill and Other Intangible Assets" (“FAS 142”) which provides, among other things, how entities are to account for goodwill and other intangible assets that arise from business combinations or are otherwise acquired. FAS 142 requires that goodwill be tested for impairment annually or more frequently under certain circumstances. At March 31, 2008 and December 31, 2007, the Company had goodwill of $7.2 million, which represents the unamortized portion of the excess of the fair value of its common stock issued over the fair value of net assets acquired in connection with its formation in 1998. Goodwill is tested for impairment at least annually at the entity level. Through March 31, 2008, the Company had not recognized any impairment against its goodwill.

(g) Real Estate

At March 31, 2008, the Company indirectly held 100% of the ownership interest in Lealand Place, a 191-unit apartment property located in Lawrenceville, Georgia (“Lealand”), which is consolidated with the Company. This property was acquired through a tax-deferred exchange under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”). (See Note 6.)

The property, capital improvements and other assets held in connection with this investment are carried at cost, net of accumulated depreciation and amortization. Maintenance, repairs and minor improvements are expensed in the period incurred, while real estate assets, except land, and capital improvements are depreciated over their useful life using the straight-line method.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(h) Repurchase Agreements

The Company finances the acquisition of its MBS through the use of repurchase agreements. Under these repurchase agreements, the Company sells securities to a lender and agrees to repurchase the same securities in the future for a price that is higher than the original sale price. The difference between the sale price that the Company receives and the repurchase price that the Company pays represents interest paid to the lender. Although structured as a sale and repurchase, under repurchase agreements, the Company pledges its securities as collateral to secure a loan which is equal in value to a specified percentage of the fair value of the pledged collateral, while the Company retains beneficial ownership of the pledged collateral. At the maturity of a repurchase agreement, the Company is required to repay the loan and concurrently receives back its pledged collateral from the lender. With the consent of the lender, the Company may renew a repurchase agreement at the then prevailing financing terms. Margin calls, whereby a lender requires that the Company pledge additional securities or cash as collateral to secure borrowings under its repurchase agreements with such lender, are routinely experienced by the Company as the value of the MBS pledged as collateral declines due to scheduled monthly amortization and prepayments of principal on such MBS. In addition, margin calls may also occur when the fair value of the MBS pledged as collateral declines due to changes in market interest rates, spreads or other market conditions. Through March 31, 2008, the Company had satisfied all of its margin calls. (See Note 7.)

Original terms to maturity of the Company’s repurchase agreements generally range from one month to 60 months. Should a counterparty decide not to renew a repurchase agreement at maturity, the Company must either refinance elsewhere or be in a position to satisfy this obligation. If, during the term of a repurchase agreement, a lender should file for bankruptcy, the Company might experience difficulty recovering its pledged assets and may have an unsecured claim against the lender’s assets for the difference between the amount loaned to the Company plus interest due to the counterparty and the fair value of the collateral pledged to such lender. The Company generally seeks to diversify its exposure by entering into repurchase agreements with at least four separate lenders with a maximum loan from any lender of no more than three times the Company’s stockholders’ equity. At March 31, 2008, the Company had outstanding balances under repurchase agreements with 15 separate lenders with a maximum net exposure (the difference between the amount loaned to the Company, including interest payable, and the fair value of the securities pledged by the Company as collateral, including accrued interest on such securities) to any single lender of $103.4 million related to repurchase agreements, or 9.8% of stockholders’ equity. (See Note 7.)

(i) Equity Based Compensation

The Company accounts for its stock-based compensation in accordance with FAS No. 123R, “Share-Based Payment,” (“FAS 123R”). The Company uses the Black-Scholes-Merton option model to value its stock options. There are limitations inherent in this model, as with all other models currently used in the market place to value stock options. For example, the Black-Scholes-Merton option model has not been designed to value stock options which contain significant restrictions and forfeiture risks, such as those contained in the stock options that are issued to certain employees. Significant assumptions are made in order to determine the Company’s option value, all of which are subjective. The fair value of the Company’s stock options are expensed using the straight-line method.

Pursuant to FAS 123R, compensation expense for restricted stock awards, restricted stock units (“RSUs”) and stock options is recognized over the vesting period of such awards, based upon the fair value of such awards at the grant date. DERs attached to such awards are charged to stockholders’ equity when declared. Equity based awards for which there is no risk of forfeiture are expensed upon grant, or at such time that there is no longer a risk of forfeiture. A zero forfeiture rate is applied to the Company’s equity based awards, given that such awards have been granted to a limited number of employees, (primarily long-term executives that have employment agreements with the Company) and that historical forfeiture rates have been minimal. Should information arise indicating that forfeitures may occur, the forfeiture rate would be revised and accounted for as a change in estimate. Grantees are not required to return the dividends or DERs if their awards do not vest. Accordingly, payments made on instruments that ultimately do not vest are recognized as additional compensation expense at the time an award is forfeited. There were no forfeitures of any equity based compensation awards during the quarters ended March 31, 2008 and 2007, respectively. (See Note 13.)

(j) Earnings per Common Share (“EPS”)

Basic EPS is computed by dividing net income/(loss) available to holders of common stock by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing net

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

income available to holders of common stock by the weighted average shares of common stock and common equivalent shares outstanding during the period. For the diluted EPS calculation, common equivalent shares outstanding includes the weighted average number of shares of common stock outstanding adjusted for the effect of dilutive unexercised stock options and RSUs outstanding using the treasury stock method. Under the treasury stock method, common equivalent shares are calculated assuming that all dilutive common stock equivalents are exercised and the proceeds, along with future compensation expenses for unvested stock options and RSUs, are used to repurchase shares of the Company’s outstanding common stock at the average market price during the reported period. No common share equivalents are included in the computation of any diluted per share amount for a period in which a net operating loss is reported. (See Note 11.)

(k) Comprehensive Income/Loss

Comprehensive income/(loss) for the Company includes net income/(loss), the change in net unrealized gains/(losses) on investment securities and derivative hedging instruments, adjusted by realized net gain/(loss) included in net income for the period and reduced by dividends on the Company’s preferred stock.

(l) U.S. Federal Income Taxes

The Company has elected to be taxed as a REIT under the provisions of the Code and the corresponding provisions of state law. The Company expects to operate in a manner that will enable it to continue to be taxed as a REIT. A REIT is not subject to tax on its earnings to the extent that it distributes its taxable ordinary net income to its stockholders. As such, no provision for current or deferred income taxes has been made in the accompanying consolidated financial statements.

(m) Derivative Financial Instruments/Hedging Activity

The Company hedges a portion of its interest rate risk through the use of derivative financial instruments, which, to date, have been comprised of Swaps and Caps (collectively, “Hedging Instruments”). The Company accounts for Hedging Instruments in accordance with FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”) as amended by FAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” and FAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” The Company’s Hedging Instruments are carried on the balance sheet at their fair value, as assets, if their fair value is positive, or as liabilities, if their fair value is negative. Since the Company’s Hedging Instruments are designated as “cash flow hedges,” the change in the fair value of any such instrument is recorded in other comprehensive income for hedges that qualify as an effective hedge and is transferred from other comprehensive income to earnings as the hedged liability affects earnings. The change in fair value of any ineffective amount of a Hedging Instrument is recognized in earnings. To date, except for gains and losses realized on Swaps terminated early and deemed ineffective, the Company has not recognized any change in the value of its Hedging Instruments in earnings as a result of the hedge or a portion thereof being ineffective.

Upon entering into hedging transactions, the Company documents the relationship between the Hedging Instruments and the hedged liability. The Company also documents its risk-management policies, including objectives and strategies, as they relate to its hedging activities. The Company assesses, both at inception of a hedge and on an on-going basis, whether or not the hedge is “highly effective,” as defined by FAS 133. The Company discontinues hedge accounting on a prospective basis and recognizes changes in fair value reflected in earnings when: (i) it is determined that the derivative is no longer effective in offsetting cash flows of a hedged item (including forecasted transactions); (ii) it is no longer probable that the forecasted transaction will occur; or (iii) it is determined that designating the derivative as a Hedging Instrument is no longer appropriate.

The Company utilizes Hedging Instruments to manage a portion of its interest rate risk and does not enter into derivative transactions for speculative or trading purposes. (See Note 5.)

Interest Rate Swaps

No cost is incurred by the Company at the inception of a Swap; however, in certain cases, the Company is required to pledge cash or securities equal to a specified percentage of the notional amount of the Swap to the counterparty as collateral. When the Company enters into a Swap, it agrees to pay a fixed rate of interest and to receive a variable interest rate, based on the London Interbank Offered Rate (“LIBOR”). The Company’s Swaps are designated as cash flow hedges against certain of its current and forecasted borrowings under repurchase agreements.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

While the fair value of the Company’s Swaps are reflected in the consolidated balance sheets, the notional amounts are not. All changes in the value of Swaps are recorded in accumulated other comprehensive income, provided that the hedge remains effective. Interest rate swap values are typically based upon their terms relative to the forward curve at the valuation date. The Company also independently reviews the valuations it receives from Swap counterparties for reasonableness relative to the forward curve to assure that the amount at which the Swap could be settled is fair value. If it becomes probable that the forecasted transaction (which in this case refers to interest payments to be made under the Company’s short-term borrowing agreements) will not occur by the end of the originally specified time period, as documented at the inception and throughout the term of the hedging relationship, then the related gain or loss in accumulated other comprehensive income is recognized through earnings.

The gain or loss from a terminated Swap remains in accumulated other comprehensive income until the forecasted interest payments affect earnings. However, if it is probable that the forecasted interest payments will not occur, then the entire gain or loss is recognized though earnings.

(n) Adoption of New Accounting Standards and Interpretations

Fair Value Measurements

On January 1, 2008, the Company adopted FAS No. 157, “Fair Value Measurements” (“FAS 157”), which defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements.

The changes to previous practice resulting from the application of FAS 157 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The definition of fair value retains the exchange price notion used in earlier definitions of fair value. FAS 157 clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the asset or owes the liability. FAS 157 provides a consistent definition of fair value which focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. In addition, FAS 157 provides a framework for measuring fair value, and establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. (See Note 9.)

FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”) permits entities to elect to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. A decision to elect the fair value option for an eligible financial instrument, which can be made on an instrument by instrument basis, is irrevocable. The Company’s adoption of FAS 159 on January 1, 2008 did not have a material impact on the its consolidated financial statements as the Company did not elect the fair value option.

FASB Interpretation No. 39-1, “Amendment of FASB Interpretation (“FIN”) No. 39.” (“FIN 39-1”), defines “right of setoff” and specifies what conditions must be met for a derivative contract to qualify for this right of setoff. FIN 39-1 also addresses the applicability of a right of setoff to derivative instruments and clarifies the circumstances in which it is appropriate to offset amounts recognized for those instruments in the balance sheet. In addition, FIN 39-1 permits offsetting of fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting arrangement and fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from the same master netting arrangement as the derivative instruments. The Company’s adoption of FIN 39-1 on January 1, 2008 did not have any impact on its consolidated financial statements.

(o) Recently Issued Accounting Standards

On March 20, 2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“FAS 161”). FAS 161 provides for enhanced disclosures about how and why an entity uses derivatives and how and where those derivatives and related hedged items are

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

reported in the entity’s financial statements. FAS 161 also requires certain tabular formats for disclosing such information. FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008 (i.e., calendar year 2009 for the Company) with early application encouraged. FAS 161 applies to all entities and all derivative instruments and related hedged items accounted for under FAS 133. Among other things, FAS 161 requires disclosures of an entity’s objectives and strategies for using derivatives by primary underlying risk and certain disclosures about the potential future collateral or cash requirements (that is, the effect on the entity’s liquidity) as a result of contingent credit-related features. The Company is currently evaluating the impact that the adoption of FAS 161 will have on its consolidated financial statements.

In February 2008, the FASB issued FASB Staff Position (“FSP”) 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions,” (“FSP 140-3”), which provides guidance on accounting for transfers of financial assets and repurchase financings. FSP 140-3 presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement (i.e., a linked transaction) under FAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“FAS 140”). However, if certain criteria, as described in FSP 140-3, are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under FAS 140. If the linked transaction does not meet the requirements for sale accounting, the linked transaction shall generally be accounted for as a forward contract, as opposed to the current presentation, where the purchased asset and the repurchase liability are reflected separately on the balance sheet.

FSP 140-3 is effective on a prospective basis for fiscal years beginning after November 15, 2008, with earlier application not permitted. Given that FSP 140-3 is to be applied prospectively, the Company does not expect that the adoption of FSP 140-3, will have a material impact on the Company’s financial statements.

In June 2007, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (“SOP”) 07-01 “Clarification of the Scope of the Audit and Accounting Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”) which provides guidance for determining whether an entity is within the scope of the guidance in the AICPA Audit and Accounting Guide for Investment Companies. On February 6, 2008, the FASB indefinitely deferred the effective date of SOP 07-1.

(p) Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. Investment Securities

At March 31, 2008 and December 31, 2007, the Company’s investment securities portfolio consisted primarily of pools of ARM-MBS, which were primarily comprised of Agency MBS and non-Agency MBS that were rated AAA by one or more of the Rating Agencies. The following tables present certain information about the Company's investment securities at March 31, 2008 and December 31, 2007.

	March 31, 2008
(In Thousands)	Principal/ Current Face		Purchase Premiums		Purchase Discounts			Amortized Cost (1)		Carrying Value/ Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gain/(Loss)
Agency MBS:
Fannie Mae Certificates	$	7,122,234	$	100,496	$	(1,046	)	$	7,221,684	$	7,291,068	$	83,978	$	(14,594	)	$	69,384
Ginnie Mae Certificates		38,730		682		-			39,412		39,639		310		(83	)		227
Freddie Mac Certificates		441,252		7,113		-			462,512		465,323		3,677		(866	)		2,811
Non-Agency MBS: (2)
Rated AAA		353,673		2,233		(704	)		355,202		315,433		-		(39,769	)		(39,769	)
Rated AA+		1,109		-		(2	)		1,107		975		-		(132	)		(132	)
Rated single A+		776		-		(2	)		774		637		-		(137	)		(137	)
Rated BBB+		439		-		-			439		351		-		(88	)		(88	)
Rated BB and below		632		-		-			632		559		7		(80	)		(73	)
Unrated		3,034		-		-			3,034		939		29		(2,124	)		(2,095	)
Total MBS	$	7,961,879	$	110,524	$	(1,754	)	$	8,084,796	$	8,114,924	$	88,001	$	(57,873	)	$	30,128
Income notes, unrated		-		-		-			1,064		1,064		-		-			-
Total investment securities	$	7,961,879	$	110,524	$	(1,754	)	$	8,085,860	$	8,115,988	$	88,001	$	(57,873	)	$	30,128

	December 31, 2007
(In Thousands)	Principal/ Current Face		Purchase Premiums		Purchase Discounts			Amortized Cost (1)		Carrying Value/ Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gain/(Loss)
Agency MBS:
Fannie Mae Certificates	$	7,157,079	$	91,610	$	(706	)	$	7,247,983	$	7,287,111	$	47,486	$	(8,358	)	$	39,128
Ginnie Mae Certificates		172,340		3,173		-			175,513		174,089		78		(1,502	)		(1,424	)
Freddie Mac Certificates		393,441		6,221		-			409,337		408,792		781		(1,326	)		(545	)
Non-Agency MBS: (2)
Rated AAA		430,025		2,341		(987	)		431,379		424,954		97		(6,522	)		(6,425	)
Rated AA+		1,413		-		-			1,413		1,392		-		(21	)		(21	)
Rated single A+		989		-		(3	)		986		967		-		(19	)		(19	)
Rated BBB+		559		-		-			559		543		-		(16	)		(16	)
Rated BB and below		1,512		-		-			1,512		1,646		134		-			134
Unrated		2,968		-		-			2,968		1,689		35		(1,314	)		(1,279	)
Total MBS	$	8,160,326	$	103,345	$	(1,696	)	$	8,271,650	$	8,301,183	$	48,611	$	(19,078	)	$	29,533
Income notes, unrated		-		-		-			1,915		1,614		-		(301	)		(301	)
Total investment securities	$	8,160,326	$	103,345	$	(1,696	)	$	8,273,565	$	8,302,797	$	48,611	$	(19,379	)	$	29,232

(1) Includes principal payments receivable, which is not included in the Principal/Current Face.
(2) Based upon ratings by Standard & Poor's Corporation.

Agency MBS: Agency MBS are guaranteed as to principal and/or interest by a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S. government, such as Ginnie Mae, and, as such, carry an implied AAA rating. The payment of principal and/or interest on Fannie Mae and Freddie Mac MBS is guaranteed by those respective agencies and the payment of principal and/or interest on Ginnie Mae MBS is backed by the full faith and credit of the U.S. government.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Non-Agency MBS: The Company’s non-Agency MBS are certificates that are backed by pools of single-family mortgage loans, which are not guaranteed by the U.S. government, any federal agency or any federally chartered corporation. Non-Agency MBS may be rated from AAA to B by one or more of the Rating Agencies or may be unrated (i.e., not assigned a rating by any of the Rating Agencies). The rating indicates the credit worthiness of the investment, indicating the obligor’s ability to meet its financial commitment on the obligation.

Other Investments: At March 31, 2008, the Company had $1.1 million invested in income notes, which are unrated securities collateralized by capital securities of a diversified pool of issuers, consisting primarily of depository institutions and insurance companies. The Company recognized an other-than-temporary impairment charge of $851,000 against the income notes, which had an amortized cost of $1.9 million prior to recognizing such impairment, as it did not expect to hold this investment until possible recovery.

The Company monitors the performance and market value of its investment securities portfolio on an ongoing basis. The following table presents information about the Company’s investment securities that were in an unrealized loss position at March 31, 2008.

	Unrealized Loss Position For:
	Less than 12 Months						12 Months or more						Total
(In Thousands)	Fair Value		Unrealized losses		Number of Securities		Fair Value		Unrealized losses		Number of Securities		Fair Value		Unrealized losses
Agency MBS:
Fannie Mae	$	1,087,347	$	5,174		76	$	607,197	$	9,420		109	$	1,694,544	$	14,594
Ginnie Mae		1,087		3		1		10,874		80		6		11,961		83
Freddie Mac		108,918		177		13		46,609		689		27		155,527		866
Non-Agency MBS:
Rated AAA		184,044		18,678		3		131,388		21,091		13		315,432		39,769
Rated AA		976		132		1		-		-		-		976		132
Rated A		637		137		1		-		-		-		637		137
Rated BBB+		350		88		1		-		-		-		350		88
Rated BB and below		420		80		2		-		-		-		420		80
Unrated		905		2,124		1		-		-		-		905		2,124
Total temporarily impaired securities	$	1,384,684	$	26,593		99	$	796,068	$	31,280		155	$	2,180,752	$	57,873

During the first quarter of 2008, in response to tightening of credit conditions, the Company adjusted its balance sheet strategy decreasing its target debt-to-equity multiple range to 7x to 9x from a historical range of 8x to 9x. In order to reduce its borrowings, the Company sold MBS with an amortized cost of $1.876 billion, realizing aggregate net losses of $24.5 million, comprised of gross losses of $25.1 million and gross gains of $571,000.

At March 31, 2008, the Company determined that it had the intent and ability to continue to hold its MBS on which it had unrealized losses until recovery of such unrealized losses or until maturity, such that the impairment of these securities was considered temporary. In making this determination, the Company considered that the decline in the value of Agency MBS was primarily related to changes in market interest rates and the widening of spreads, related to the current credit environment, as the receipt of par is guaranteed by the respective Agency guarantor and that all of the non-Agency securities in an unrealized loss position at March 31, 2008 had maintained their rating. However, such assessment may change over time given, among other things, the dynamic nature of interest rate markets and other variables. Future sales or changes in the Company’s assessment of its ability and/or intent to hold impaired investment securities until recovery or maturity could result in the Company recognizing other-than-temporary impairment charges or realized losses in the future.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents the impact of the Company’s investment securities on its other comprehensive income/(loss) for the three months ended March 31, 2008 and 2007.

	Three Months Ended March 31,
(In Thousands)	2008			2007
Accumulated other comprehensive income/(loss) from investment securities:
Unrealized gain/(loss) on investment securities at beginning of period	$	29,232		$	(30,995	)
Unrealized gain on investment securities, net		8,836			12,500
Reclassification adjustment for MBS sales		(8,241	)		-
Reclassification adjustment for other-than-temporary impairment included in net income from investment securities		301			-
Balance at the end of period	$	30,128		$	(18,495	)

The following table presents components of interest income on the Company’s MBS portfolio for the three months ended March 31, 2008 and 2007.

	Three Months Ended March 31,
(In Thousands)	2008			2007
Coupon interest on MBS	$	130,282		$	92,684
Premium amortization		(5,358	)		(8,344	)
Discount accretion		91			1
Interest income on MBS, net	$	125,015		$	84,341

The following table presents certain information about the Company’s MBS that will reprice or amortize based on contractual terms, which do not consider prepayments assumptions, at March 31, 2008.

	March 31, 2008
Months to Coupon Reset or Contractual Payment	Fair Value		% of Total			WAC (1)
(Dollars in Thousands)
Within one month	$	509,663		6.3	%		6.31	%
One to three months		153,443		1.9			6.10
Three to 12 Months		303,330		3.7			6.24
One to two years		87,424		1.1			5.59
Two to three years		438,326		5.4			6.04
Three to five years		2,395,896		29.5			5.95
Five to 10 years		4,226,842		52.1			5.83
Total	$	8,114,924		100.0	%		5.93	%

(1) "WAC" is the weighted average coupon rate on the Company’s MBS, which is higher than the net yield that will be earned on such MBS. The net yield is primarily reduced by net premium amortization and the contractual delay in receiving payments, which delay varies by issuer.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents information about the Company's MBS pledged as collateral under repurchase agreements and in connection with Swaps at March 31, 2008.

	MBS Pledged Under Repurchase Agreements						MBS Pledged for Swaps
MBS Pledged	Fair Value/ Carrying Value		Amortized Cost		Accrued Interest on Pledged MBS		Fair Value/ Carrying Value		Amortized Cost		Accrued Interest on Pledged Swaps			Total Fair Value of MBS Pledged and Accrued Interest
(In Thousands)
Fannie Mae	$	7,159,637	$	7,089,894	$	34,377	$	86,770	$	87,147	$	451	$	7,281,235
Freddie Mac		409,699		406,550		4,091		32,764		32,994		369		446,923
Ginnie Mae		23,517		23,388		119		12,421		12,291		66		36,123
Rated AAA		309,142		346,548		1,640		-		-		-		310,782
	$	7,901,995	$	7,866,380	$	40,227	$	131,955	$	132,432	$	886	$	8,075,063

4. Interest Receivable

The following table presents the Company’s interest receivable by investment category at March 31, 2008 and December 31, 2007.

(In Thousands)	March 31, 2008		December 31, 2007
Interest Receivable on:
Fannie Mae MBS	$	35,062	$	36,376
Ginnie Mae MBS		200		870
Freddie Mac MBS		5,053		4,177
MBS rated AAA		1,684		2,070
MBS rated AA		6		7
MBS rated A & A-		4		5
MBS rated BBB and BBB-		2		3
MBS rated BB and below		3		6
Unrated MBS		1		1
MBS interest receivable	$	42,015	$	43,515
Income notes		-		3
Cash investments		139		92
Total interest receivable	$	42,154	$	43,610

5. Hedging Instruments

As part of the Company’s interest rate risk management process, it periodically hedges a portion of its interest rate risk by entering into derivative financial instrument contracts. At and for the quarter ended March 31, 2008, the Company’s derivatives were entirely comprised of Swaps, which have the effect of modifying the repricing characteristics of the Company’s repurchase agreements and cash flows on such liabilities. In addition, the Company is required to pledge assets as collateral for certain of its Swaps, which collateral varies over time based on the market value, notional amount and remaining term of the Swap. The Company had MBS with a fair value of $132.0 million and $79.9 million pledged as collateral against its Swaps at March 31, 2008 and December 31, 2007, respectively. In addition, the Company had $7.3 million and $4.5 million of cash (i.e., restricted cash) pledged against Swaps at March 31, 2008 and December 31, 2007, respectively. The use of Hedging Instruments exposes the Company to counterparty credit risks. In the event of a default by a Swap counterparty, the Company may not receive payments provided for under the terms of its Swaps, and may have difficulty receiving back its assets pledged as collateral against its Swaps.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents the impact of the Company’s Hedging Instruments on the Company’s other comprehensive loss for the three months ended March 31, 2008 and 2007.

	For the Three Months Ended March 31,
(In Thousands)	2008			2007

Accumulated other comprehensive (loss)/income from Hedging Instruments:
Balance at beginning of period	$	(99,733	)	$	602
Unrealized (loss)/gain on Hedging Instruments, net		(90,013	)		(4,751	)
Reclassification adjustment for net losses included in net income from Swaps		48,162			-
Balance at the end of period	$	(141,584	)	$	(4,149	)

(a) Interest Rate Swaps

Swaps are used by the Company to lock in a fixed interest rate on a portion of its current and anticipated future repurchase agreements. During the three months ended March 31, 2008, the Company terminated 48 Swaps with an aggregate notional amount of $1.637 billion, resulting in net realized losses of $91.5 million and, in connection therewith, repaid the repurchase agreements that such Swaps hedged.

The following table presents the weighted average rate paid and received for the Company’s Swaps and the net impact of Swaps on the Company’s interest expense for the three months ended March 31, 2008 and 2007, respectively.

	For the Three Months Ended March 31,
(Dollars In Thousands)	2008			2007
Weighted average Swap rate paid		4.58	%		4.97	%
Weighted average Swap rate received		3.84	%		5.33	%
Net addition to/(reduction of) interest expense from Swaps	$	9,331		$	(1,662	)

At March 31, 2008, the Company’s had Swaps with an aggregate notional balance of $4.226 billion, which had gross unrealized losses of $141.6 million. At March 31, 2008, the Company’s Swaps extended 29 months on average with a maximum term of seven years. The following table presents information about the Company’s Swaps at March 31, 2008, all of which were active.

	March 31, 2008
Maturity (1)	Notional Amount		Weighted Average Fixed Pay Interest Rate
(Dollars In Thousands)
Within 30 days	$	83,462		3.92	%
Over 30 days to 3 months		166,242		4.06
Over 3 months to 6 months		236,105		4.03
Over 6 months to 12 months		469,561		4.06
Over 12 months to 24 months		933,566		4.15
Over 24 months to 36 months		846,014		4.19
Over 36 months to 48 months		530,755		4.16
Over 48 months to 60 months		597,412		4.40
Over 60 months		362,541		4.22
Total	$	4,225,658		4.17	%

(1) Reflects contractual amortization of notional amounts.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(b) Interest Rate Caps

Caps are designated by the Company as cash flow hedges against interest rate risk associated with the Company’s existing and forecasted repurchase agreements. When the 30-day LIBOR increases above the rate specified in the Cap Agreement during the effective term of the Cap, the Company receives monthly payments from its Cap counterparty. The Company had no Caps at or during the three months ended March 31, 2008.

The following table presents the impact of Caps on the Company’s interest expense for the three months ended March 31, 2008 and March 31, 2007.

	For the Three Months Ended March 31,
(In Thousands)	2008		2007
Premium amortization on Caps	$	-	$	181
Payments earned on Caps		-		(196	)
Net decrease to interest expense related to Caps	$	-	$	(15	)

6. Real Estate

The Company’s investment in real estate at March 31, 2008 and December 31, 2007, which is consolidated with the Company, was comprised of an indirect 100% ownership interest in Lealand, a 191-unit apartment property located in Lawrenceville, Georgia.

The following table presents the summary of assets and liabilities of Lealand at March 31, 2008 and December 31, 2007.

	March 31,			December 31,
(In Thousands)	2008			2007
Real Estate Assets and Liabilities:
Land and buildings, net of accumulated depreciation	$	11,543		$	11,611
Cash		29			26
Prepaid and other assets		132			260
Mortgage payable (1)		(9,425	)		(9,462	)
Accrued interest and other payables		(133	)		(256	)
Real estate assets, net	$	2,146		$	2,179

(1) The mortgage collateralized by Lealand is non-recourse, subject to customary non-recourse exceptions, which generally means that the lender’s final source of repayment in the event of default is foreclosure of the property securing such loan. This mortgage has a fixed interest rate of 6.87%, contractually matures on February 1, 2011 and is subject to a penalty if prepaid. The Company has a loan to Lealand which had a balance of $185,000 at March 31, 2008 and December 31, 2007. This loan and the related interest accounts are eliminated in consolidation.

The following table presents the summary results of operations for Lealand for the three months ended March 31, 2008 and 2007:

	Three Months Ended March 31,
(In Thousands)	2008			2007
Revenue from operations of real estate	$	414		$	413
Mortgage interest expense		(163	)		(167	)
Other real estate operations expense		(286	)		(253	)
Loss from real estate operations, net	$	(35	)	$	(7	)

7. Repurchase Agreements

The Company’s repurchase agreements are collateralized by the Company’s MBS and cash and typically bear interest at rates that are LIBOR-based. At March 31, 2008, the Company’s repurchase agreements had a weighted average remaining contractual maturity of approximately five months and an effective repricing period of 21 months, including the impact of related Swaps. At December 31, 2007, the Company’s repurchase agreements had a

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

weighted average remaining contractual maturity of approximately five months and an effective repricing period of 23 months, including the impact of related Swaps.

At March 31, 2008 and December 31, 2007, the Company's repurchase agreements had a weighted average interest rate of 3.50% and 5.06%, respectively. The following table presents contractual repricing information about the Company’s repurchase agreements, which does not reflect the impact of related Swaps that hedge existing and forecasted repurchase agreements, at March 31, 2008.

	March 31, 2008
			Weighted Average
Maturity (1)	Balance		Interest Rate
(Dollars In Thousands)
Within 30 days	$	3,421,611		3.05	%
Over 30 days to 3 months	2,297,541			3.32
Over 3 months to 6 months	258,806			3.42
Over 6 months to 12 months	144,358			4.95
Over 12 months to 24 months	936,678			5.16
Over 24 months to 36 months	94,873			4.30
Over 36 months	157,900			4.02
	$	7,311,767		3.50	%

(1) Swaps, which are not reflected in the table, in effect modify the repricing period and rate paid on the Company’s repurchase agreements. (See Note 5.)

The following table presents information about the Company's MBS that are pledged as collateral under repurchase agreements based upon the term to maturity of the repurchase agreements at March 31, 2008.

			Term to Contractual Maturity on Repurchase Agreement
MBS Collateral	Fair Value of Collateral		Up to 30 Days		30 to 90 Days		Over 90 Days		Total
(In Thousands)
Agency MBS	$	7,592,853	$	3,200,540	$	2,187,751	$	1,677,821	$	7,066,112
AAA Rated		309,142		192,055		53,600		-		245,655
	$	7,901,995	$	3,392,595	$	2,241,351	$	1,677,821	$	7,311,767

8. Commitments and Contingencies

Lease Commitments and Contingencies

The Company pays monthly rent pursuant to two separate operating leases. The Company’s lease for its corporate headquarters extends through April 30, 2017 and provides for aggregate cash payments ranging from approximately $1.1 million to $1.4 million per year, exclusive of escalation charges and landlord incentives. In connection with this lease, the Company established a $350,000 irrevocable standby letter of credit in lieu of lease security for the benefit of the landlord through April 30, 2017. The letter of credit may be drawn upon by the landlord in the event that the Company defaults under certain terms of the lease. In addition, at March 31, 2008, the Company had a lease through December 2011 for its off-site back-up facility located in Rockville Centre, New York, which provides for, among other things, rent of approximately $27,000 per year.

9. Fair Value of Financial Instruments

Following is a description of the Company’s valuation methodologies for financial assets and liabilities measured at fair value in accordance with FAS 157. Such valuation methodologies were applied to the Company’s financial assets and liabilities carried at fair value. The Company has established and documented processes for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, then fair value is based upon internally developed models that primarily use inputs that are market-based or independently-sourced market parameters, including interest rate yield curves.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of valuation hierarchy established by FAS 157 are defined as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following describes the valuation methodologies used for the Company’s financial instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Investment Securities

The Company’s investment securities, which are primarily comprised of Agency ARM-MBS, are valued by a third-party pricing service that provides pool-specific evaluations. The pricing service is provided daily To-Be-Announced (“TBA”) securities (TBA securities are liquid and have quoted market prices and represent the most actively traded class of MBS) evaluations from an ARMs trading desk and Bond Equivalent Effective Margins (“BEEMs”) of actively traded ARMs. Based on government bond research, prepayment models are developed for various types of ARM-MBS by the pricing service. Using the prepayment speeds, the pricing service calculates the BEEMs of actively traded ARM-MBS. These BEEMs are further adjusted by trader maintained matrix/logic based on other ARM-MBS characteristics such as, but not limited to, index, reset date, collateral types, life cap, periodic cap, seasoning or age of security. The pricing service determines prepayment speeds for a given pool. Given the specific prepayment speed and the BEEM, the corresponding evaluation for the specific pool is computed using a cash flow generator with current TBA settlement day. The income approach technique is then used for the valuation of the Company’s investment securities. The Company’s investment securities are primarily valued based upon readily observable market parameters and are classified as Level 2 fair values.

Swaps

The Company’s Swaps are valued using external third-party bid quotes and internally developed models that apply readily observable market parameters. The Company’s Swaps are classified as Level 2 fair values.

The following table presents the Company’s financial instruments carried at fair value as of March 31, 2008, on the consolidated balance sheet by FAS 157 valuation hierarchy, as previously described.

	Fair Value at March 31, 2008
(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Investment securities	$	-	$	8,115,988	$	-	$	8,115,988
Swaps		-		-		-		-
Total assets carried at fair value		-		8,115,988		-		8,115,988

Liabilities:
Swaps		-		141,584		-		141,584
Total liabilities carried at fair value	$	-	$	141,584	$	-	$	141,584

Any changes to the valuation methodology are reviewed by management to ensure the changes are appropriate. As markets and products develop and the pricing for certain products becomes more transparent, the Company continues to refine its valuation methodologies. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The Company uses inputs that are current as of the measurement date, which may include periods of market dislocation, during which price transparency may be reduced. This condition could cause the Company’s financial instruments to be reclassified from Level 2 to Level 3.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

10. Stockholders’ Equity

(a) Dividends on Preferred Stock

The following table presents dividends declared by the Company on its preferred stock, from January 1, 2007 through March 31, 2008.

Year	Declaration Date	Record Date	Payment Date	Cash Dividend Per Share

2008	February 21, 2008	March 3, 2008	March 31, 2008	$	0.53125

2007	February 16, 2007	March 1, 2007	March 30, 2007	$	0.53125
	May 21, 2007	June 1, 2007	June 29, 2007		0.53125
	August 24, 2007	September 4, 2007	September 28, 2007		0.53125
	November 21, 2007	December 3, 2007	December 31, 2007		0.53125

(b) Dividends on Common Stock

The Company typically declares quarterly cash dividends on its common stock in the month following the close of each calendar quarter, except that dividends for the fourth quarter of each year are declared in that quarter for tax reasons related to its REIT qualification.

On April 1, 2008, the Company declared its 2008 first quarter common stock dividend of $0.18, payable on April 30, 2008, to stockholders of record on April 14, 2008. (See Note 15.) The following table presents dividends declared by the Company on its common stock from January 1, 2007 through March 31, 2008:

Declaration Date	Record Date	Payment Date	Cash Dividend Per Share
April 3, 2007	April 13, 2007	April 30, 2007	$	0.080
July 2, 2007	July 13, 2007	July 31, 2007		0.090
October 1, 2007	October 12, 2007	October 31, 2007		0.100
December 13, 2007	December 31, 2007	January 31, 2008		0.145

On October 19, 2007, the Company filed an automatic shelf registration statement on Form S-3 with the SEC under the Securities Act of 1933, as amended (the “1933 Act”), with respect to an indeterminate amount of common stock, preferred stock, depositary shares representing preferred stock and/or warrants that may be sold by the Company from time to time pursuant to Rule 415 of the 1933 Act. Pursuant to Rule 462(e) of the 1933 Act, this registration statement became effective automatically upon filing with the SEC. On November 5, 2007, the Company filed a post-effective amendment to this automatic shelf registration statement, which became effective automatically upon filing with the SEC.

On December 17, 2004, the Company filed a registration statement on Form S-8 with the SEC under the 1933 Act for the purpose of registering additional common stock for issuance in connection with the exercise of awards under the Company’s 2004 Equity Compensation Plan (the “2004 Plan”), which amended and restated the Company’s Second Amended and Restated 1997 Stock Option Plan (the “1997 Plan”). This registration statement became effective automatically upon filing and, when combined with the previously registered, but unissued, portions of the Company’s prior registration statements on Form S-8 relating to awards under the 1997 Plan, related to an aggregate of 3.3 million shares of common stock, of which 1.9 million shares remained available for issuance at March 31, 2008.

On December 17, 2004, the Company filed a shelf registration statement on Form S-3 with the SEC under the 1933 Act for the purpose of registering additional common stock for sale through the Dividend Reinvestment and Stock Repurchase Plan (“DRSPP”). This shelf registration statement was declared effective by the SEC on January 4, 2005 and, when combined with the unused portion of the Company’s previous DRSPP shelf registration statement, registered an aggregate of 10 million shares of common stock. At March 31, 2008, 8.5 million shares of common stock remained available for issuance pursuant to the DRSPP shelf registration statement.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(d) Public Offerings of Common Stock

On January 23, 2008, the Company completed a public offering of 28,750,000 shares of common stock, which included the exercise of the underwriters’ over-allotment option in full, at a public offering price of $9.25 per share and received net proceeds of approximately $253.0 million after the payment of underwriting discounts and commissions and related expenses.

(e) DRSPP

The Company’s DRSPP is designed to provide existing stockholders and new investors with a convenient and economical way to purchase shares of common stock through the automatic reinvestment of dividends and/or optional monthly cash investments. During the three months ended March 31, 2008, the Company issued 5,769 shares of common stock through the DRSPP, raising net proceeds of $52,000. From the inception of the DRSPP in September 2003, through March 31, 2008, the Company issued 13,047,487 shares pursuant to the DRSPP raising net proceeds of $119.0 million.

(f) Controlled Equity Offering Program

On August 20, 2004, the Company initiated a controlled equity offering program (the “CEO Program”) through which it may, from time to time, publicly offer and sell shares of common stock through Cantor Fitzgerald & Co. (“Cantor”) in privately negotiated and/or at-the-market transactions. The Company did not issue any shares of common stock in at-the-market transactions through the CEO Program during the three months ended March 31, 2008. From inception of the CEO Program through March 31, 2008, the Company issued 6,500,815 shares of common stock in at-the-market transactions through such program raising net proceeds of $51,543,121 and, in connection with such transactions, paid Cantor fees and commissions of $1,263,421. Shares for the CEO Program are issued through the automatic shelf registration statement on Form S-3 that was filed on October 19, 2007, as amended.

(g) Stock Repurchase Program

On August 11, 2005, the Company announced the implementation of a stock repurchase program (the “Repurchase Program”) to repurchase up to 4.0 million shares of its outstanding common stock. Subject to applicable securities laws, repurchases of common stock under the Repurchase Program are made at times and in amounts as the Company deems appropriate, using available cash resources. Shares of common stock repurchased by the Company under the Repurchase Program are cancelled and, until reissued by the Company, are deemed to be the authorized but unissued shares of the Company’s common stock.

On May 2, 2006, the Company announced an increase in the size of the Repurchase Program, by an additional 3,191,200 shares of common stock, resetting the number of shares of common stock that the Company is authorized to repurchase to 4.0 million shares, all of which remained authorized for repurchase at March 31, 2008. The Repurchase Program may be suspended or discontinued by the Company at any time and without prior notice. The Company has not repurchased any shares of its common stock under the Repurchase Program since April 2006. From inception of the Repurchase Program in April 2005 through April 2006, the Company repurchased 3,191,200 shares of common stock at an average cost of $5.90 per share.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11. EPS Calculation

The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted EPS for the three months ended March 31, 2008 and 2007.

	Three Months Ended March 31,
(In Thousands, except per share amounts)	2008			2007
Numerator:
Net (loss)/ income to common stockholders:
Net (loss)/income	$	(85,943	)	$	9,850
Dividends declared on preferred stock		(2,040	)		(2,040	)
Net (loss)/income to common stockholders for basic and diluted earnings per share	$	(87,983	)	$	7,810

Denominators:
Weighted average common shares for basic earnings per share		144,710			80,762
Weighted average dilutive employee stock options (1)		87			33
Denominator for diluted earnings per share (1)		144,710			80,795
Basic and diluted net (loss)/earnings per share:	$	(0.61	)	$	0.10

(1) The impact of dilutive stock options is not included in the computation of earnings per share for the three months ended Match 31, 2008, as their inclusion would be anti-dilutive.

12. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss at March 31, 2008 and December 31, 2007 was as follows:

(In Thousands)	March 31, 2008			December 31, 2007
Available-for-sale Investment Securities:
Unrealized gains	$	88,001		$	48,611
Unrealized (losses)		(57,873	)		(19,379	)
		30,128			29,232
Hedging Instruments:
Unrealized (losses) on Swaps, net		(141,584	)		(99,733	)
		(141,584	)		(99,733	)
Accumulated other comprehensive (loss)	$	(111,456	)	$	(70,501	)

13. Equity Compensation, Employment Agreements and Other Benefit Plans

(a) 2004 Equity Compensation Plan

In accordance with the terms of the 2004 Plan, directors, officers and employees of the Company and any of its subsidiaries and other persons expected to provide significant services (of a type expressly approved by the Compensation Committee of the Board (“Compensation Committee”) as covered services for these purposes) for the Company and any of its subsidiaries are eligible to receive grants of stock options (“Options”), restricted stock, RSUs, DERs and other stock-based awards under the 2004 Plan.

In general, subject to certain exceptions, stock-based awards relating to a maximum of 3.5 million shares of common stock may be granted under the 2004 Plan; forfeitures and/or awards that expire unexercised do not count towards such limit. At March 31, 2008, 1.9 million shares of common stock remained available for grant in connection with stock-based awards under the 2004 Plan. Subject to certain exceptions, a participant may not receive stock-based awards in excess of 500,000 shares of common stock in any one-year and no award may be granted to any person who, assuming exercise of all Options and payment of all awards held by such person, would own or be deemed to own more than 9.8% of the outstanding shares of the Company’s capital stock. Unless previously terminated by the Board, awards may be granted under the 2004 Plan until the tenth anniversary of the

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

date that the Company’s stockholders approved such plan.

A DER is a right to receive, as specified by the Compensation Committee at the time of grant, a distribution equal to the dividend that would be paid on a share of common stock. DERs may be granted separately or together with other awards and are paid in cash or other consideration at such times, and in accordance with such rules, as the Compensation Committee shall determine at its discretion. Distributions are made with respect to vested DERs only to the extent of ordinary income and DERs are not entitled to distributions representing a return of capital. Payments made on the Company’s DERs are charged to stockholders’ equity when the corresponding common stock dividends are declared. The Company made DER payments of approximately $187,000 and $57,000, respectively, during the three months ended March 31, 2008 and 2007 for common stock dividends declared in the previous December. At March 31, 2008, the Company had 1,035,892 DERs outstanding, all of which were entitled to receive dividends.

Options

Pursuant to Section 422(b) of the Code, in order for stock options granted under the 2004 Plan and vesting in any one calendar year to qualify as an incentive stock option (“ISO”) for tax purposes, the market value of the Company’s common stock, as determined on the date of grant, shall not exceed $100,000 during such calendar year. The exercise price of an ISO may not be lower than 100% (110% in the case of an ISO granted to a 10% stockholder) of the fair market value of the Company’s common stock on the date of grant. The exercise price for any other type of Option issued under the 2004 Plan may not be less than the fair market value on the date of grant. Each Option is exercisable after the period or periods specified in the award agreement, which will generally not exceed ten years from the date of grant. Options will be exercisable at such times and subject to such terms set forth in the related Option award agreement, which terms are determined by the Compensation Committee.

At March 31, 2008, 707,000 Options were outstanding under the 2004 Plan, all of which were vested and exercisable, with a weighted average exercise price of $9.32. No Options were granted and no Options expired during the three months ended March 31, 2008 and March 31, 2007. During the three months ended March 31, 2008, 255,000 Options were exercised and no Options were exercised during the three months ended March 31, 2007. As of March 31, 2008, the aggregate intrinsic value of total Options outstanding was $143,000.

Restricted Stock

During the three months ended March 31, 2008 and 2007, the Company issued 10,811 and 20,504 shares of restricted common stock, respectively. At March 31, 2008 and December 31, 2007, the Company had unrecognized compensation expense of $181,000 and $200,000, respectively, related to unvested shares of restricted common stock.

Restricted Stock Units

An RSU is a right to receive, subject to the satisfaction of conditions set by the Compensation Committee at the time of grant, a payment of a specified value, which, as specified by the Compensation Committee at the time of grant, may be a share of the Company’s common stock, the fair market value of a share of the Company’s common stock or such fair market value to the extent in excess of an established base value, on the applicable settlement date. On October 26, 2007, the Company granted an aggregate of 326,392 RSUs, together with DERs attached to certain of the Company’s employees under the 2004 Plan. At March 31, 2008 and December 31, 2007, all of the Company’s RSUs outstanding were subject to cliff vesting on December 31, 2010 or earlier in the event of death or disability of the grantee or termination of an employee for any reason, other than “cause,” as defined in the related RSU award agreement. RSUs will be settled in shares of the Company’s common stock on the earlier of a termination of service, a change in control or on January 1, 2013, as described in the related award agreement. At March 31, 2008, the Company had unrecognized compensation expense of $2.4 million related to the unvested RSUs.

MFA MORTGAGE INVESTMENTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents expenses recorded by the Company related to its equity based compensation instruments for the three months ended March 31, 2008 and 2007.

	Three Months Ended March 31,
(In Thousands)	2008	2007
Options